Metaplace’s out of business; will Blue Mars outlast it?

On the same day, I got hold of two bits of news from the metaverse front: first, Blue Mars announced their pricing. Oh, all right, I know I’m behind the news… the point is that this relaunched the Second Life® vs. Blue Mars debate once again. I started following the SLED (Educators in SL) mailing list and how the academic community was not impressed — neither with the pricing, but much less about the requirements to run Blue Mars.

Then, several hours later, another bomb dropped in my mailbox. Raph Koster’s brainchild, Metaplace, went out of business, terminating operations on January 1, 2010.

If you remember late 2007/early 2008, you’ll remember what every “virtual world expert” was saying: the Metaverse would happen inside the Web browser. The future was supposed to be embeddable 3D VW applications, hopefully inside Facebook. Kids would be using virtual worlds like crazy, and a huge growth in that area was predicted. While nobody was really claiming that Second Life would disappear overnight, they were expecting a big shift towards completely different audiences and technologies, namely, Flash.

And people believed them. The Electric Sheep Company moved out of Second Life and started doing their own Flash-based virtual world — and made a few sales (yes, one was for a company wishing to embed it on Facebook). Raph Koster gathered venture capital and made a big splash about his notion of a virtual world with 16-pixel-high avatars on isometric landscapes which would become the next revolution in user-generated content — specially because you could use SketchUp for building things, or even just copy 3D objects from Google Warehouse and immediately upload them to Metaplace and start having fun. And of course they were not the only ones. A bit all over the place, companies and opinion-makers started telling us how everything we thought about the “metaverse” was wrong, and that concepts like Second Life/OpenSim were simply outdated and had to evolve or disappear.

At this point I did only gently cough and said, “follow the money”.

Metaplace’s closing down does not come as a surprise to me, but for totally different reasons. While I recognise that the funding method through venture capital is a good way to develop innovative technology, I still maintain that there is a huge gap between “academic research” and “successful business”, and not everybody is able to leap that gap.

Academic research brought us things like… OpenCroquet (now called OpenCobalt). Which is not dead yet, but it’s a telltale sign that one of their major developers, Duke University, has fully embraced Second Life and OpenSim — although they still allow Julian Lombardi to place a nice link to it under his personal homepage. It’s a nice technology, when you can get it working at all, of course. But it’s hard to put a valid business model behind it. It’s great for the research lab. But as a business model?…

There are thousands of “virtual world construction kits” out there on SourceForge and similar websites. Most are tiny one-person-projects. Many are research tools with solid development behind it. None have impressed us much 🙂 … except occasionally for some nice graphics here and there or a paper or two showing how cool an obscure renderer was implemented.

Koster’s Metaplace had the advantage of at least having a solid technological platform — for the expectations generated in late 2007/early 2008. As for its business model… it was not clear. Everything was to be given away for free, except for some obscure licensing schemes, which were never the strong points. This is not surprising — almost all hi-tech virtual world start-ups keep giving everything away for free, and then suddenly realise they don’t have a working business model. VastPark, who had a cool 3D rendering engine, was perhaps one of the latest massive failures (they now released all the code as open source and closed shop). I’m sure that Metaplace’s ultimate failure happened for the same reason: once the venture capital was exhausted, the question was — how many sales did Metaplace actually make?

If you find it so harsh to judge technology by its failure to sustain a working business model, think again. We are supposed to be cleverer after the dot-com bubble burst! But we’re not. We’re still selling “ideas” and believing they’re valuable. They’re not; anyone can have good ideas. A few can implement them. But only a very, very tiny group of people can actually make them profitable. And it’s just those ideas that actually will survive on the tough marketplace.

It’s not about the “financial crisis”. If I were in a very sarcastic mood, I’d say that a solid business model, that is not based on sheer marketing but of actually fulfilling a real need, will survive any financial crisis, so long as the company behind it is not wasting money on unnecessary things. But that’s oversimplifying the issue, of course. Nevertheless, a good hint on whether a technology will survive or not is following the money.

My first instinct is always checking if I can understand the business model of a technological company. If it’s clearly stated on their site, and they can explain how they attract customers and sell them technology, there are good reasons to believe they’re going to succeed. If they have diminishing costs as the number of customers increase, they’ll be very successful at some stage (see eBay and Amazon). If their costs rise linearly over time as they get more customers, they will manage to survive (see Linden Lab) and might even self-sustain themselves when reaching a plateau (There.com is a good example). In fact, during a financial crisis, an “elastic” company that can survive without exponential growth is surely going to be around for a long time (Blizzard might be one of the best examples; they don’t need to duplicate or triplicate their number of World of Warcraft players to continue to shell out a billion US$ per year of profits).

But if you can’t figure out how they make money — they’re doomed to disappear.

Consider Twitter vs. Facebook. Twitter’s costs in infrastructure just grow and grow, as more people send more and more tweets through their gateways. Over half of the tweets never reach their sites — they just use the many (free) APIs to deliver messages among users on third-party sites. Twitter has no ads. They don’t visibly sell any service. They don’t report income. We all “know” that they sell profiling data, but… to whom? And for how much? We don’t know. So why are they still around? How long will their venture capital last? How will they turn Twitter into a profitable service? If you have any clue, please leave a comment — I’d love to know the answer 🙂

Facebook is an interesting example. They started just like Twitter — everything was for free. But although Facebook has several APIs as well, it’s far more complex to manage your account without ever going to their website. So this means that at least they had something solid: a webpage with lots of traffic. What do you do with lots of traffic? You sell ads (and, of course, profiling data; thus their draconian terms of service demanding “real people with real names”). This is what Microsoft told them when they bought a share, in exchange for using Microsoft’s ad-serving software on Facebook. This managed Facebook to actually start making some money out of their technology. We all understand web-based ads: we just need to look at Google to see how you create a huge technology giant out of that (while ironically, during the dot-com days, people thought that web-based ads were doomed to disappear… Google just laughed and bought the competition and established themselves as a quasi-monopoly on ad serving 🙂 ).